Navigating uncertainty

Geopolitical risk dashboard

December 2021 | We see geopolitics in 2022 as driven by domestic policy priorities, U.S.-China competition, divergence between developed and emerging markets, and dynamics relating to the bumpy energy transition.

BlackRock Geopolitical Risk Indicator

The global BlackRock Geopolitical Risk Indicator (BGRI) aims to capture the market attention to our geopolitical risks. Overall, our global BGRI shows a significant reduction in concern about geopolitical risk since the change in U.S. administration. The gauge has been hovering in negative territory this year, as the chart shows, meaning investor attention to geopolitical risks is below the average of the past four years. See our methodology section for details. As a result, geopolitical shocks could catch investors more off guard than usual.

Free Form Html-1,Advance Static Table-1
Paragraph-2,Free Form Html-2,Advance Static Table-2
Global indicator
Forward-looking estimates may not come to pass. Source: BlackRock Investment Institute. . The BlackRock Geopolitical Risk Indicator (BGRI) tracks the relative frequency of brokerage reports (via Refinitiv) and financial news stories (Dow Jones News) associated with specific geopolitical risks. We adjust for whether the sentiment in the text of articles is positive or negative, and then assign a score. This score reflects the level of market attention to each risk versus a 5-year history. We use a shorter historical window for our COVID risk due to its limited age. We assign a heavier weight to brokerage reports than other media sources since we want to measure the market's attention to any particular risk, not the public’s.

Top 10 risks by likelihood

We raise the likelihood of our Gulf tensions risk as prospects deteriorate for a full revival of the 2015 Iran nuclear deal. We leave the remaining risks unchanged, but highlight potential conflicts with Russia and North Korea. We note four areas where market attention and our views diverge: Gulf tensions, North Korea conflict, Major cyber attack(s), and Major terror attack(s). In each instance, we believe markets are underappreciating the potential risks.

Sources: BlackRock Investment Institute, with data from Refinitiv. Data as of September, 2021. Notes: The “risks” column lists the 10 key geopolitical risks that we track. The “description” column defines each risk.  “Market attention” is a graphical snapshot of recent movement in the BlackRock Geopolitical Risk Indicator (BGRI) for each risk. The BGRI measures the degree of the market’s attention to each risk, as reflected in brokerage reports and financial media. See the "methodology" tab for details. The table is sorted by the “Likelihood” column which represents our fundamental assessment, based on BlackRock’s subject matter experts, of the probability that each risk will be realized – either low, medium or high – in the near term. The “our view” column represents BlackRock’s most recent view on developments related to each risk. This is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or security in particular. Individual portfolio managers for BlackRock may have opinions and/or make investment decisions that may, in certain respects, not be consistent with the information contained herein.

Comparing market movements and attention

We have developed a market movement score for each risk that measures the degree to which asset prices have moved similarly to our risk scenarios, integrating insights from our Risk & Quantitative Analysis (RQA) team and their Market-Driven Scenario (MDS) shocks. We do this by estimating how “similar” the current market environment is to our expectation of what it would look like in the event the particular MDS was realized, also taking into account the magnitude of market moves. The far right of the horizontal axis indicates that the similarity between asset movements and what our MDS assumed is greatest; the middle of the axis means asset prices have shown little relationship to the MDS, and the far left indicates markets have behaved in the opposite way that our MDS anticipated.

Risk map
BlackRock Geopolitical market attention, market movement and likelihood

Forward-looking estimates may not come to pass. Source: BlackRock Investment Institute. . Notes: The vertical axis depicts the market attention to each of our top-10 risks, as reflected in brokerage reports and financial media and measured by the BlackRock Geopolitical Risk Index (BGRI). The horizontal axis shows our estimate of the degree to which asset prices have moved in accordance with our risk scenarios (horizontal axis). See the “How it works” tab for details. The color of the dots indicates our fundamental assessment of the relative likelihood of the risk – low, medium or high, as per the legend. Some of the scenarios we envision do not have precedents – or only imperfect ones. The scenarios are for illustrative purposes only and do not reflect all possible outcomes as geopolitical risks are ever-evolving. The chart is meant for illustrative purposes only. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds, strategy or security in particular.

Selected scenario variables

How to gauge the potential market impact of each of our top-10 risks? We have identified three key “scenario variables” for each – or assets that we believe would be most sensitive to a realization of that risk. The chart below shows the direction of our assumed price impact.

Geopolitical risk Asset Direction of assumed price impact
Global technology decoupling Chinese yuan Downwards arrow
U.S. investment grade Downwards arrow
Asia ex-Japan electrical Downwards arrow
Major cyberattack(s) U.S. high yield utilities Downwards arrow
U.S. dollar Upwards arrow
U.S. utilities sector Downwards arrow
COVID-19 resurgence U.S. investment grade credit Downwards arrow
Asia investment grade credit Downwards arrow
U.S. energy investment grade Downwards arrow
U.S.-China strategic competition Taiwanese dollar Downwards arrow
Taiwanese equities Downwards arrow
China high yield Downwards arrow
Emerging markets political crisis Latin America consumer staples sector Upwards arrow
Emerging vs. developed equities Downwards arrow
Brazil debt Downwards arrow
Major terror attack(s) Germany 10-year government bond Upwards arrow
Japanese yen Upwards arrow
Europe airlines sector Downwards arrow
North Korea conflict Japanese yen Upwards arrow
South Korean won Downwards arrow
South Korean equities Downwards arrow
Gulf tensions Brent crude oil Upwards arrow
VIX volatility index Upwards arrow
U.S. high yield credit Downwards arrow
Climate policy gridlock U.S. building products sector Downwards arrow
U.S. construction materials sector Downwards arrow
U.S. utilities sector Upwards arrow
European fragmentation Italy 10-year government debt Downwards arrow
EMEA hotels and leisure Downwards arrow
Russian rouble Downwards arrow

Source: BlackRock Investment Institute, with data from BlackRock’s Aladdin Portfolio Risk Tools application, June 2021. Notes: The table depicts the three assets that we see as key variables for each of our top-10 geopolitical risks – as well as the direction of the assumed shocks for each in the event of the risk materializing. The up arrow indicates a rise in prices (corresponding to a decline in yields for bonds); the down arrow indicates a fall in prices. Our analysis is based on similar historical events and current market conditions such as volatility and cross-asset correlations. See the “implied stress testing framework” section of the 2018 paper Market-Driven Scenarios: An Approach for Plausible Scenario Construction for details. For illustrative purposes only. The scenarios are for illustrative purposes only and do not reflect all possible outcomes as geopolitical risks are ever-evolving. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds, strategy or security in particular.

Geopolitics in 2022

We see geopolitics in 2022 as driven by domestic polarization, U.S.-China competition, divergence between developed and emerging markets, and dynamics relating to the bumpy energy transition.

A contentious U.S. political landscape

The honeymoon phase of the Biden presidency is over, and the administration is focused on its signature initiatives – including the $1.2 trillion bipartisan infrastructure bill and the roughly $2 trillion Build Back Better package of social policy programs. The scale of the legislation will present implementation challenges, but also create new opportunities because of significant market impact, in our view. Regulation, particularly on antitrust, climate and digital assets, will come to the fore in 2022 – alongside progressive issues such as voting rights.

Republicans are likely to flip the House of Representatives in the 2022 midterm elections, history suggests. Only once since WWII has a president gained seats in the House during his first midterm election – in 2002, when President Bush enjoyed high approval ratings after the 9/11 attacks. Presidents with approval ratings below 50 percent have, on average, lost 37 seats in midterm elections, and Biden’s approval rating has been hovering in the low-40s. We see U.S. policy focusing on domestic issues in 2022 and expect the change in Congressional majority to drive policy gridlock.

A floor under the U.S.-China relationship

The nature of the U.S.-China relationship remains broadly confrontational. The U.S. is enforcing or extending selected Trump administration policies and actions, and there is little political space to make concessions. A U.S. diplomatic boycott of the Beijing Olympics has added to the strain. In China, there is little interest in compromise; Beijing has put the onus for progress on the U.S. to address Chinese complaints. Meanwhile, President Xi Jinping has undertaken a major reorientation of China’s development approach focused on anti-monopoly, data security and common prosperity.

Yet the two nations are generally seeking to lower the temperature within the overall confrontational frame. Beijing wants to reduce tensions amid a challenging environment of lower growth and ambitious domestic initiatives. Xi also wants to ensure stability in the run-up to the Winter Olympics and the 2022 National Party Congress, where he is expected to be elected to a third term. President Biden, too, is primarily focused on his domestic agenda. As a result, the two leaders met virtually in an effort to put a floor under the relationship and prevent it spiraling from competition to conflict. The U.S.-China joint declaration on climate is significant both as a political signal, and as a commitment to rebuild the technical cooperation on climate policy last seen during the Obama administration.

Looking ahead, concerns in the U.S. are growing over China’s military buildup, including China’s hyper-sonic missile test, hundreds of new ICBM solos, simulations with US aircraft carrier models and a potential Atlantic maritime foothold in West Africa. The Pentagon has asserted that China could quadruple its deliverable warheads to 1,000 by 2030. Chairman of the Joint Chiefs Mark Milley said that China’s military buildup reflects “one of the largest shifts in global and geostrategic power that the world has witnessed” – and a significant risk to the U.S. Tensions over Taiwan are also high, but we see the likelihood of a military confrontation as low in the near term. The risk increases into the decade.

A delicate balance in the Middle East

Contrasting dynamics are at play in the Middle East. On the one hand, the Iran nuclear situation has deteriorated meaningfully. The pace of Iran’s nuclear advancements means a return to the 2015 agreement may not be possible. Negotiations are likely to extend deep into 2022, and Iranian oil will remain (at least officially) off the market during that time. Iran will get closer to attaining a nuclear weapon, and we could approach a situation similar to that in 2011-2012, when Israeli decisionmakers contemplated a military strike against Iran’s nuclear facilities. Such military action would fall short of an all-out war but have potential for escalation – and presents a real risk over the next year.

On the other hand, there’s been a general de-escalation of tensions among the Gulf oil producers. This recalibration is driven, among other things, by the U.S. pivot to Asia, as seen in the military withdrawal from Afghanistan. In Saudi Arabia, Crown Prince Mohammed bin Salman (MBS) ended the blockade of Qatar, has pledged to end the war in Yemen, is engaging in dialogue with Iran and pursuing domestic reforms. MBS is also reportedly considering normalization with Israel. The UAE, too, is taking steps to improve relations with Iran and Turkey. And despite some political tensions, the UAE and Israel have expanded their relationship. These dynamics are taking place against a backdrop of high oil prices. We see efficient producers in the Gulf as having significant pricing power during the climate transition.

Lastly, we see disruption and state failure in non-oil rich countries like Lebanon, Syria, and Yemen driving greater conflict and social unrest in the year ahead.

Potential conflicts with Russia and North Korea

Tensions are building around Russia’s massing of troops near the Ukraine border and North Korea’s nuclear program. The first presents one of the most serious security situations in Europe in decades – and has already led to a virtual meeting between Biden and Russian President Vladimir Putin. The U.S. and its European allies are threatening harsh economic sanctions in the event of further Russian escalation. A Russian buildup in April turned out not to be an issue, but the current situation is significantly more worrying and presents a meaningful risk in the first quarter of 2022.

North Korea has escalated provocations, and a recent Stanford analysis noted that its nuclear production capacity is much larger than previously reported. We see this as an increasingly serious situation and a key risk for 2022.

Previous focus risks

  • The geopolitical implications of COVID-19

    The COVID-19 pandemic represents a generational crisis, with significant geopolitical implications. As the pandemic enters its second year, we examine three key areas where it may intersect with underlying geopolitical fault lines: U.S.- China strategic competition, emerging market (EM) instability and European populism.

    U.S.-China: Vaccine diplomacy meets strategic competition

    It has become increasingly clear that vaccination is key to a full economic restart, as lockdowns can only do so much in a globalized world. As a result, the vaccine rollout has become a vector of heightened U.S.-China competition for global influence. China is seeking to lead “vaccine diplomacy” in EMs, and the U.S. is eying its own global vaccination push in partnership with allies – including through the G7 and Quadrilateral Security Dialogue partners (Japan, India, Australia).

    Beijing has said it will send vaccines to many countries around the world – and has been open to licensing production to foreign countries as well. China’s global vaccine drive parallels its infrastructure investment as part of its Belt and Road Initiative. China has prioritized sending vaccines abroad, with a commitment to export 2 billion doses this year. The challenge: Case studies in countries reliant on the Chinese vaccines have shown mixed results – even as the World Health Organization has authorized certain Chinese vaccines for emergency use. In Chile and the Seychelles, for example, infection rates have remained high despite high vaccination rates.

    Western vaccines’ stronger efficacy presents an opportunity for U.S. diplomacy. The U.S. has started to export doses after focusing initially on meeting domestic demand. At a June summit, G7 leaders committed to donate 870 million vaccine doses over the next twelve months; the U.S. alone committed 500 million doses. This follows a commitment by Quad members to deliver at least one billion vaccine doses to countries in need by the end of 2022, with a focus on Southeast Asia and the Pacific. The Biden administration has made the vaccine drive a strategic objective and seeks to eventually position the U.S. as a net exporter of effective vaccines. We see the dynamics of vaccine diplomacy becoming a key dimension of U.S.-China competition.

    Emerging markets: A “dangerous divergence” could drive instability

    We see the gap between the emerging and developed worlds widening in 2021 – accelerating a pre-pandemic trend. Developed markets have procured a disproportionate share of vaccines, and many have fully vaccinated at least half of their populations. EMs (ex-China), by contrast, won’t pass this threshold until at least 2022, if not 2023. 82% of shots administered worldwide have been in high-and upper-middle-income countries, meanwhile less than 1% of doses have been administered in low-income countries. Vaccine access is a challenge for developing economies, as are delivery and distribution. The poor vaccine rollout has allowed new COVID variants to emerge – delaying the economic restart in many EMs. As a result, 2021 may be one of the rare years where EM (ex-China and India) growth actually lags DM growth.

    At the same time, rising interest rates fueled by the global restart have tightened financial conditions for indebted emerging economies. Many EMs have started raising rates and cut spending to fend off inflation, reversing last year’s stimulus. The gross financing needs of EM (ex-China and India) sum to $1.3 trillion, according to BlackRock calculations, a stark reminder of EM’s vulnerability to rising borrowing costs. Rising rates could lead markets to question EM debt sustainability, raising the risk of restructuring and defaults. UN Secretary General António Guterres has cautioned against “an illusion of sustainability” and IMF Managing Director Kristalina Georgieva warned of a “dangerous divergence between and within economies.” On the plus side: soaring demand for commodities is providing a financial lift for EM commodities producers.

    We see a risk of political and social unrest across EMs that experience persistent infections, worsening poverty, deteriorating economic and fiscal conditions (including food inflation), and weak government performance. In a January report, the World Bank estimated that the pandemic could push 143-163 million people into extreme poverty in 2021, marking the first increase in global poverty since 1998. Pressure on governments can quickly spiral into social unrest, as seen in Colombia, Peru and Brazil. As most EMs head to the polls in the coming years, these dynamics could have significant long- term implications, including democratic backsliding or populist outcomes. Latin America looks particularly vulnerable, but other regions bear close monitoring as well.

    Europe: COVID-19 unlikely to fuel fragmentation

    A powerful pan-European fiscal response and flexible monetary policy bolstered unity early in the pandemic and has been sustained to date. Questions around the handling of vaccine procurement by the European Commission, delayed rollouts at the country level, and concerns around the European vaccine of choice have now given way to an accelerated vaccination drive. The EU and UK now have higher vaccination rates than the U.S. This is enabling an activity restart in the EU.

    Initial stumbles in the vaccine rollout fueled discontent with establishment political parties, though any significant risk of European fragmentation looks at bay. In Germany, we see a wide-open race for September’s federal election - though all major parties support a strong EU. Under Finance minister Olaf Scoltz’s leadership, the Social Democrats have unexpectedly caught up with Chancellor Angela Merkel’s Christian Democratic Union, whose political dominance is eroding. In all events, a three-party coalition will likely be needed and could take time to form. Ahead of the April 2022 French elections, Marine Le Pen of the populist Rassemblement National has been competitive with President Emmanuel Macron in polls. A Le Pen victory over Macron would put a break on further European integration; however it appears to remain unlikely. Meanwhile in Italy, Prime Minister Mario Draghi has strengthened the case for technocratic leadership in Europe. Bottom line: we see a low likelihood of European fragmentation.

  • Emerging markets amid global pandemic

    The COVID-19 pandemic presents both a public health and economic crisis for many emerging markets (EMs). This spring, we questioned whether emerging markets would be able to weather the storm and saw the potential for spillover risks to the global economy. We now re-visit our EM outlook and refresh our short- and long-term views.

    Current state

    Emerging markets outside of Northeast Asia came into 2020 in a fragile position. A year of mass protests in many EMs generated economic uncertainty, market selloffs and widening credit spreads. The COVID-19 pandemic exacerbated existing pressures on EMs. International travel restrictions drove mass unemployment in tourist destinations such as South Africa and Turkey, while the global industrial slowdown hit commodity producers across Latin America, the Middle East and Africa . A severe loss of income plagued emerging markets across the globe.

    On top of these economic pressures, the relatively weak health infrastructure of many emerging markets made them particularly vulnerable to the pandemic — as did more limited institutional capacity and, in some cases, poor governance. We worried that lockdown policies and economic anxiety could drive renewed social unrest.

    The impact of the pandemic has varied by country. LatAm has been particularly hard hit, whereas the fallout has been more limited in Northeast Asia and Eastern Europe. We have seen notable developments across the health and economic dimensions of the crisis. First, the COVID-19 fatality rate in some countries – especially Asia – has been lower than in developed markets (DMs), even though the infection rate in many EMs has been similar. Reports attribute this to prior epidemic experience as well as younger populations. Next, EMs have been able to deploy more fiscal stimulus than we expected – and have access to the liquidity provided by accommodative DM policies. Defaults have increased, but not to the level that many feared. Argentina and Ecuador, for example, have both completed successful restructurings. Together, these dynamics have enabled the gradual return of economic activity.

    Stimulus helps, but underlying tensions remain

    EM growth likely bottomed in the second quarter of this year, but we expect the recovery to be slow and uneven. China’s recovery should prove supportive for EMs, however countries that deployed sizable stimulus packages will now face large fiscal burdens and questions over long-term debt sustainability. Over the months ahead, we think investors will be focused on economies regaining some path to solvency. Countries such as Lebanon will likely resort to restructuring – with international institutions including the IMF playing a key role in short-term dollar funding and advice.

    We see tensions between societal expectations and government performance persisting across the EM landscape. The current crisis will likely lead to higher unemployment and greater income inequality, driving increased demands on governments. Pressure on governments to provide relief will grow – with implications for countries’ fiscal outlooks, social stability and future electoral outcomes.

    Vaccine nationalism and poverty are challenges

    The pandemic has raised two specific challenges for EM: vaccine nationalism and a resurgence of poverty. First, the COVID-19 pandemic has spurred a global vaccine race and amplified nationalist, protectionist sentiment. As of July, there were more than 150 candidate COVID vaccines in development, with nearly two dozen in clinical trials. And in September, a global initiative – led by the World Health Organization (WHO) – was created to ensure equitable distribution of coronavirus vaccines. 65 higher-income economies have joined, with more signatories expected. Notably, neither the U.S. nor Russia have signed on. Amid a broader rise in nationalism and protectionism, we see it as likely that leaders will prioritize taking care of their own populations over helping to protect vulnerable populations elsewhere. Emerging and developing countries could be the hardest hit by this.

    Second, EMs have been important beneficiaries of globalization, with dramatic reductions in poverty and the building of middle-class households. The pandemic could now lead to the first increase in global poverty since 1998; the World Bank estimates that as many as 88 to 115 million people could be pushed into extreme poverty in 2020. The COVID-19 crisis, combined with the pressures of climate change and conflict, could make achieving global poverty targets increasingly difficult in the years to come, driving greater inequality between countries

    Market views

    We are underweight EM equities as well as hard- and local-currency EM debt on a six-to-12 month horizon. We are concerned about the pandemic’s spread and see less room or willingness for policy measures to cushion the impact in many countries. EM’s heavy reliance on energy exports also makes us cautious. Default risks may be underpriced. The pandemic’s containment in many Asian countries and low energy exposure are positives, though rising U.S.-China tensions are a key risk. 

    The November U.S. elections will further influence the EM outlook. More predictable trade and immigration policies under a Biden administration would be favorable for EMs, as would a potentially weaker U.S. dollar. In addition, a Biden administration would be more likely to pursue multilateral relief efforts that could benefit EMs. Any large fiscal stimulus could have global spillovers, supporting cyclical assets such as EM equities and credit.

  • Mass protests have taken shape across both emerging and developed markets over the past year. This high level of social unrest has developed against a backdrop of economic expansion and strong asset returns. This begs the question: What happens in a cyclical economic downturn? We take a deep dive into this area as one of our key geopolitical themes for 2020, cross-cutting several of our top-10 risks.

    A wave of global protests

    2019 saw the development of a large number of protest movements—most prominently in Latin America, the Middle East and Asia. Each protest is distinct in cause, but there is an underlying pattern of inequality, middle class discontent, and a disconnect between the electorate and governing elites. The policies that followed from the 2008-2009 Global Financial Crisis magnified the drivers of this discontent; the labor share of income has never been so weak in many countries. A number of protests have seen calls for self-expression and in some cases independence. Several movements are linked to environmental and climate change concerns.

    The current wave of social unrest demonstrates the increased tendency for individuals to pursue political, economic and social change via protest. Yet it has become a vicious cycle. A Harvard University study (Trends in nonviolent resistance and state response; 2017) notes the rising rate of protests in recent years. Despite protests’ increased frequency, the study notes that the success rate of protests is decreasing—in turn, making them more likely as demands go unmet.

    Enabled by technology

    The growing role of technology in enabling protests makes these movements significantly different than in the past. Technology—specifically, social media—has enabled protest movements to organize more quickly than before. Social media has also enabled movements around the world to learn from and coordinate with each other.

    Market implications

    Across markets, protests have generated uncertainty, market selloffs, and spread widening. For example, contagion fears saw currencies across Latin America sell off last fall as protests developed. We worry about fiscal deterioration should unrest continue, particularly given a high level of global debt. Furthermore, many countries have low tax rates. Redistribution policies that increase taxes on corporations—alongside a tight labor market that compels companies to increase wages and other benefits—will erode earnings, with implications for stock and corporate bond prices.

    Limited room for maneuver

    The current wave of protests is happening at a time when policy space is reaching its limit—in emerging and developed markets, and across both economic and political dimensions.

    Economic constraints

    Governments are increasingly constrained economically in their ability to respond to social unrest. Some countries are already in negative rates territory; many others are close to a lower bound and historically low rates territory. On the monetary side, only several countries have decent policy space left—Russia and Mexico, for example.

    On the fiscal side, debt levels are already very high, particularly in developed markets. In emerging markets, there is more fiscal space—in countries like Chile for example—but there is a fine balance between maintaining fiscal responsibility and pursuing well-targeted fiscal spending to address popular demands.

    These dynamics present additional risks in a context of slower growth. Governments will be increasingly hesitant to pursue adjustments that could stoke discontent. This will be particularly challenging in the case of fossil fuel subsidies, as sustainability and climate concerns simultaneously increase.

    Political constraints

    Elections are important outlets for expressing popular discontent. In 2020, relatively few countries are slated to hold national elections, making it more likely that individuals take to the streets to express their views. In addition, polarization—across economic, social and political dimensions—is reaching a high point in many countries. This could lead to institutional paralysis, making governance and the management of social unrest even more difficult.

    Dealing with the next economic downturn

    Domestically, a cyclical downturn would create pressure on the political status quo in many countries. While this may serve to improve the prospects of populist or anti-establishment leaders, such leaders would also find their ability to respond severely constrained. Once in power, populist leaders tend to follow an economically unsustainable playbook.

    More broadly, we have entered into in a much more competitive and uncertain world order, with a very different approach to U.S. leadership globally. This is a sharp departure from the relatively constructive, productive post-Cold War period. Cooperative international relationships, and strong multilateral institutions, were critical to managing the 2008-2009 global financial crisis. We worry about the global policymakers’ ability to manage the next downturn in an environment in which those global alliances and institutions are weakened or increasingly absent.

  • Market attention to European fragmentation has declined from its May peak, as acute risks to European integration— beyond Brexit—have subsided. We take a deep dive into this area and identify flashpoints that could reverse this trend. In 2018, we highlighted three major threats to European integration: Brexit, Greek and Italian fiscal policy, and creeping authoritarianism in Central and Eastern Europe (CEE). In Italy, we worried that the formation of a left-right populist government opened up a path toward full or partial breakup of the eurozone. In CEE, we saw the rise of authoritarian governments leading to division within Europe over economic and foreign policy. Lastly, we forecast a protracted period of transition for the UK. Our base case was that of Europe “muddling through” – tensions would rise, but not boil over.

    Acute risks

    Our outlook today has turned more constructive. Of the three risks we flagged, only Brexit remains acute. We remain vigilant to the undercurrent of anti-establishment sentiment in Europe, particularly in a context of slowing growth. Populist sentiment is closely associated with economic anxiety. With this in mind, we find it notable and concerning that the latest breakout of anti-EU populism occurred amid peak post-crisis cyclical performance for the eurozone. We worry fragmentation risks may rise in the event of an economic downturn, which Europe is ill-equipped to handle forcefully.

    Brexit: The political situation in the UK remains in flux, yet recent developments have widened the distribution of possible outcomes. Parliament succeeded in passing legislation to block a no-deal Brexit, and the Supreme Court ruled that Johnson’s suspension of Parliament was unlawful. The UK is legally set to leave the EU on Oct. 31. At the time of writing, parties have resumed intense negotiations for a deal. Should a deal not be secured by Oct. 19, Johnson would be forced to request an extension – which would likely be granted. In all scenarios, an election appears likely soon after Oct. 31. With four parties polling evenly, the outcome of an election is uncertain.

    The fiscal grenades: Italy and Greece: A miscalculation forced the populist government in Italy to dissolve itself, paving the way for a moderate coalition between the center-left Democratic party (PD) and the anti-establishment Five Star Movement. Weak polling by both parties suggests they will stay together until 2022, when the next president is elected. Conflict over the 2020 budget is unlikely, with a confrontational government in Italy and a more conciliatory Commission in place. In Greece, elections brought to power a center right government committed to its surplus target. Faster-than-expected growth could prompt tax cuts, thereby boosting government popularity and growth further.

    Central and Eastern Europe: Tensions between CEE governments and the EU will likely remain frozen. Though the European Parliament has opened disciplinary procedures against Hungary and Poland for their attacks on the media and politicization of the judiciary, both countries have agreed to block sanctions against the other. Incoming European Commission President Ursula Von Der Leyen will seek compromise with CEE countries—evidenced by her appointment of CEE ministers to key Commission posts—yet disputes over environmental policy and migration could create friction. Proposals linking EU funding to performance on rule of law will likely generate opposition among CEE governments.

  • Background: The U.S. and China are competing to take the commanding heights of technology. This competition is coming to a head in the debate over fifth-generation (5G) cellular networks. This is the high-speed mobile technology that will enable enhanced communications and advanced technology solutions. First adopters of 5G are expected to sustain a significant long-term competitive advantage. The U.S. and China see 5G leadership as a matter of economic and national security and are competing to be the first to deploy the technology and set the standards for 5G globally. Each country is ramping up efforts and adjusting policies to win the 5G race. In China, technology development has the full weight of the national government behind it. The government has laid out a comprehensive plan — Made in China 2025 — to create globally competitive firms and reduce China’s dependence on foreign technology. In the U.S., by contrast, the development of new technologies is led by the private sector. The U.S. is home to many of the world’s most innovative firms and a strong pool of talent. Silicon Valley operates with limited regulation, coordination or direction from the national government. This enables diffuse outcomes. Yet the U.S. lacks a coordinated technology strategy, employees of U.S. tech companies often oppose government contracts, and concern is rising that the U.S. government is not doing enough to support innovation.

    Key issues: Chinese President Xi Jinping has called for China to surpass the U.S. technologically by 2030, sparking a strong reaction in the U.S. Washington increasingly views advanced technologies as a zero-sum game; any progress made by China is seen as coming at the U.S.’s expense. The current challenge between the U.S. and China is focused on three key issues: national security, economic competitiveness, and global systems dominance.

    National Security: U.S. government officials fear that technological advances made by China will threaten U.S. national security. The U.S. is taking measures to protect its technology and intellectual property (IP) from transfers, acquisitions and other perceived threats to its national security. These include: 

    • Expanded CFIUS authority: Legislation expanded the authority of the Committee on Foreign Investment in the United States (CFIUS) in 2018 by extending its powers and offering a broader definition of what constitutes “critical technologies.” It does not single out specific countries, but is seen as a tool for countering Chinese attempts to acquire sensitive U.S. technologies and IP. Recent actions forcing Chinese firms to unwind their acquisitions of U.S. companies on national security grounds demonstrate the extent of CFIUS’s authority.
    • New export controls: The Export Control Reform Act of 2018 expands the U.S. export controls process to review joint ventures involving sensitive U.S. technology. In line with this legislation, the U.S. could soon implement new export controls targeting China across a range of technologies.
    • Visa restrictions: The U.S. administration is considering measures to block Chinese citizens from performing sensitive research at U.S. universities and research institutes over fears they may acquire critical IP. Certain types of projects could become subject to personnel restrictions — particularly those related to technologies central to China’s Made in 2025 strategy.
    • Entity restrictions: The U.S. has implemented whole entity restrictions against Huawei and could move toward similar restrictions against Chinese surveillance, AI, and other technology companies. Such restrictions could prevent companies from doing business in the U.S. or purchasing U.S. components. Any blocking of partnerships with foreign countries and companies utilizing Chinese technology would have even greater impact.

    China, too, cites national security justifications in its push for technology development. China wants to reduce its dependence on foreign suppliers of digital and communications equipment and, instead, scale up its own capabilities and cyber defenses. Steps taken include:

    • Unreliable Entities List: In response to recent actions by the U.S., China announced on May 31 the creation of an “unreliable entities list” with the intention of blacklisting foreign companies, organizations, or individuals that hurt Chinese companies. Chinese officials have promised additional details on what constitutes an “unreliable entity” and how the designations will be implemented.
    • Cybersecurity Law: Amid escalating tensions, China has taken steps toward implementing its Cybersecurity Law, which had been delayed since taking effect in June 2017. The law could be used to restrict foreign companies’ ability to purchase Chinese technology or sell foreign technology into the Chinese market, on the basis of national security. It could also include measures restricting data transfer and forcing data localization.

    Economic competitiveness: Each country is taking a very different approach toward achieving global technology leadership, and this is spilling over into the trade dispute. China’s Made in China 2025 strategy is reliant on government subsidies, technology transfer, and the promotion and protection of national champions. China’s state-led model helps to ensure that domestic firms are at the forefront of technology standards and development globally. These practices are clear in its approach to 5G development. Not only have recent government plans earmarked $400 billion for 5G-related investments, but the government has also arranged for its top telecom providers to coordinate on 5G development, and for Chinese Internet platform companies to subsidize 5G rollout. In the aftermath of the recent U.S. actions against Chinese technology companies, the Chinese government announced tax breaks for Chinese semiconductor companies and software developers. This is a point of contention for the U.S., which sees Chinese government support as threatening the ability of U.S. companies to compete globally. The U.S. administration has leveraged Section 301 of the Trade Act of 1974 to combat China’s industrial policy and approach to IP. The U.S. has imposed 25% tariffs on $250 billion worth of Chinese imports in accordance with this measure, and has threatened to implement tariffs on an additional $300 billion worth of Chinese imports. The Section 301 report mentions “Made in China 2025” more than 110 times. Resolving the tariff dispute, as well as the underlying structural issues, is the focus of ongoing negotiations.

    Global systems dominance: For nearly half a century, the U.S. has guided the growth and development of the Internet in a model that is characterized by limited regulation, privacy and free speech. Now China is presenting an alternative global systems model with its strategy to transform into a cyber superpower. China’s Internet guides public opinion and fosters economic growth — and is tightly controlled to ensure regime stability. The competition between the U.S. and China raises the prospect of technological spheres of influence. In the case of 5G, the U.S. administration has made clear that countries and companies may be forced to choose sides. The recent Entity List designation of Huawei and implementation of U.S. export controls will accelerate this trend. We see this leading to tensions between the U.S. and traditional allies, with early signs the UK and Japan may be forced to the U.S. side, despite initial opposition.

    Implications for markets: We see confrontation over these issues driving the progressive decoupling of the U.S. and Chinese technology sectors, with meaningful implications for the global economy and markets. It makes sense for investors to own selected technology stocks in both the U.S. and China, and to deepen their understanding of the import and export control regime of different nation states.


  • The BGRI for our Major cyberattack(s) risk is hovering above its historical average, signaling moderate market attention to this risk. Yet cyberattacks are increasing in scope and intensity. We believe markets are underestimating the impact of cyberattacks as four broad trends are converging:

    1. Both the opportunity for attack and the threat posed are rising as the world becomes increasingly digitalized. The increased use of artificial intelligence in business also heightens exposure to cyber risks.
    2. The proliferation of Internet-connected devices and availability of open source code have lowered the barriers to entry for cyber crimes. Cyber actors across the world vary in sophistication and capability, ranging from well-funded government agencies to poorly resourced criminal groups and terrorist networks.
    3. Digital warfare is becoming an important tool of statecraft, allowing countries to pursue their geopolitical and economic objectives through a wider variety of means. In 2016, NATO expanded its definition of “war domains” beyond air, land and sea to include cyberspace.
    4. Defensive capabilities have been slow to evolve. In fact, many organizations have effectively conceded that their infrastructure will be breached, and are instead focusing on minimizing the ensuing damage. In the U.S., more than 50 federal, state and local laws mandate disclosure of cyber breaches to regulators or affected consumers. In Europe, the recently implemented General Data Protection Regulation (GDPR) requires companies to publicly disclose data breaches to national data protection authorities and to individuals when the threat of harm is significant. Failure to do so can result in substantial fines.

    As the cyber threat rises, we expect financial markets to pay increasing attention. We see three cyber-related risks and opportunities with a potential market impact: threats to critical infrastructure; threats to specific corporates; and opportunities for cybersecurity.

    1. Threats to critical infrastructure

    • Physical infrastructure: Modern economic activity depends on the availability of electricity, meaning any significant interruption to power supply could directly damage assets and infrastructure and force a loss in sales revenue to electricity supply companies and the businesses that rely on them. Our analysis of the potential impact of an attack on the U.S. power grid shows equity market sell-offs, led by utilities and industrials. U.S. Treasuries, the yen and gold would rally. Utility credit spreads would widen, and natural gas rally as an alternative resource.
    • Financial infrastructure: The IMF has now recognized cyberattacks as posing a systemic risk to the financial system. Attacks in advanced economies typically target data or business disruptions, while attacks in emerging markets are more frequently related to fraud. We see the market impact in such a scenario exacerbated by a drop in confidence among market participants. We could see financial stocks leading a global risk-off reaction; Treasuries and gold rallying; and the U.S. dollar benefiting from broad risk aversion and foreign investors liquidating overseas assets to meet margin calls.
    • Technology infrastructure: A cyberattack on technology infrastructure could result in a prolonged outage. This may cause significant disruption and loss of business to industries that rely on these services, as well as reputational damage for the data, storage and internet providers. The effects of such an outage could cascade through supply chains and to other industries such as insurers. We believe large-cap companies would underperform smaller companies, as the top technology service providers and their clients tend to be larger companies. We see the Internet software and services, retail, and insurance industries suffering the most.

    2. Threats to specific corporations

    Many companies have witnessed sharp share price declines after disclosing cyberattacks in recent years. Attacks have typically targeted companies with large amounts of personal data. Data is a double-edged sword: It has huge value in allowing companies to understand customer trends, but also becomes an enormous burden to protect. The IMF estimated in 2017 that the cost of cyber losses to the U.S. economy range between 0.6% to 2.2% of GDP a year , although this is more than offset by the positive contribution from Internet-based activity. Major financial services and tech companies are often targets but tend to have advanced defenses. We see the utility, energy and defense sectors as among the most vulnerable, although they are now increasing their spending on cybersecurity. Across all industries, risks to watch include companies involved in drawn-out mergers, and firms that rely heavily on third-party vendors.

    3. Opportunities in cybersecurity

    It is broadly accepted within the technology industry that no cybersecurity provider is able to provide a comprehensive solution — the scope of the threat is too broad. Companies’ chief security ofcers are charged with patching together a wide range of tools. The existing technology has its faults, but we believe spending is extremely durable given regulatory requirements to demonstrate preventative technology is in place. We nd opportunities in four main areas.

    • Cloud computing: Some see cloud technology as vulnerable to an attack, but others believe shifting operations to “the cloud” is one of the best ways to protect against cyberattack. Technology companies are offering two types of cloud-based solutions. The first provides cloud-based network services, making the servers that were previously hackable redundant. The second aims to negate the impact of hack attempts: All of a company’s IP traffic is sent to the cloud, cleaned and returned to the company. This is a thorough method to prevent cyberattacks, but it comes at the cost of speed.
    • Network segmentation: An alternative approach sees companies focusing the bulk of their technology spending on software that “fragments” the network to minimize the damage of a potential cyber risk, rather than looking to prevent hackers from gaining entry altogether. The company is alerted when a hacker has gained access to a very small part of a database/server, and the company can then shut down that part of the operation until the attack is nullified.
    • Identity: User verification is one of the biggest challenges in cybersecurity. Systems are much harder to hack if there is constant verification. This means companies offering solutions that implement regular checks via single sign-on are in increasing demand.
    • Blockchain: Distributed ledgers store information in multiple locations across a single network, meaning that if hackers succeeded in altering one record, it can instantly be identified as different to other records in the system. Blockchain technology is also offering improved data encryption, and producing new and more secure ways of controlling network access, including through multi-signature and multi-party computation cryptography. This can eliminate the need for password-based security systems.


  • The BGRI for our Global trade tensions risk has risen to more than two standard deviations above its historic average, signaling elevated market attention to global trade issues. We indicated in January that U.S. President Donald Trump’s 2017 rhetoric on trade would turn into action in 2018. That has proven to be the case, with global trade tensions becoming a key source of geopolitical instability in the world today. The U.S. is in some form of trade dispute with allies and major trading partners in all areas of the world. These disputes are fueling uncertainty about the global growth outlook. We focus on three specific fronts: U.S.-China, U.S.-Europe and U.S.-Mexico-Canada.

    1. The U.S. administration has shown hostility toward multilateral and international agreements, evident in its withdrawal from the Trans-Pacific Partnership trade pact, its preference for bilateral versus multilateral deals, and its criticism of the World Trade Organization (WTO). The Trump administration, while blocking appointments at the WTO appellate court, is engaged with Europe and Japan on designing reforms to the WTO that target subsidies and other “unfair” practices currently being used by China. Trump has threatened to withdraw from the WTO if it doesn’t do a better job of serving America’s interests. His administration’s failure to allow appeals judges to be appointed to the WTO could bring the dispute resolution system to a halt.
    2. We see a prolonged period of trade and economic tensions between the U.S. and China. Tensions will focus on both the bilateral trade deficit and — perhaps more importantly — China’s industrial policy, with a special emphasis on technology development programs. These have competitive and national security implications for the U.S. Support for challenging China’s practices that appear inconsistent with global trade rules is evident across the U.S. political spectrum. An initial round of tariffs at a rate of 25% on $50 billion of Chinese goods has been implemented. The U.S. is implementing a 10% tariff on an additional $200 billion worth of Chinese imports. The rate is set to rise to 25% from Jan. 1, 2019. China retaliated by announcing tariffs on an additional $60 billion of U.S. imports. We have also seen the reform of the Committee on Foreign Investment in the United States (CFIUS) and passage of the Export Control Reform Act of 2018 (ECRA). This legislation does not single out any specific country, but it is largely seen as a tool for countering Chinese attempts to acquire sensitive American technologies and intellectual property. The symbiotic relationship between China and the U.S. means both sides have incentives to reach an agreement, but security concerns related to technology will keep tensions high.
    3. U.S.-Europe disputes center on the U.S. investigations into the impact of steel, aluminum and auto imports on national security. A July 25 meeting between Trump and European Commission (EC) President Jean-Claude Juncker concluded with an agreement to avoid a further escalation of trade tensions, at least for now. In a joint statement, the U.S. and the EU agreed to step back in the implementation of future tariffs and to work toward “zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods.” The agreement offered a symbolic “win” for both sides but failed to resolve the core issues. A joint Executive Working Group is now carrying this agenda forward, with a mandate to develop a work plan by mid-November. If negotiators appear to lose control of the talks, or if approval from all EU countries on a negotiation mandate appears difficult to achieve, our level of worry would rise.
    4. U.S. withdrawal from NAFTA is a possibility — though unlikely in our view. While the new USMCA deal reduces tensions for now, the next challenge will be ratification. Approval in Mexico and Canada appears likely. Yet ratification by the U.S. Congress is uncertain. Under its TPA, the U.S. Congress is unlikely to vote on the agreement until 2019. The outcome of the November midterm elections will be a key signpost to watch to determine what may come next.

    We outline three possible outcomes of rising global trade tensions:

    1. Our base case: Continued global trade tensions, but with all sides focused on China. The USMCA replaces NAFTA, and Section 232 tariffs on auto imports are avoided. The U.S. maintains its offensive against China’s industrial policy with a focus on the "Made in China 2025" initiative, leveraging Section 301 to inflict harsh penalties. Chinese retaliation in the form of tariffs — including a higher tariff rate on a smaller number of goods — and non-tariff measures — such as denying licenses and visas or implementing quotas — likely follows. The ratcheting up of tensions between the U.S. and China hurts global risk assets (see U.S.- China relations). Elevated trade tensions weigh on business confidence but not to an extent that reduces investment sufficiently to threaten the global growth outlook.
    2. A market-negative scenario: The U.S. imposes sweeping trade-related tariffs and non-tariff barriers against China as talks break down. U.S. allies, including the EU, Mexico and Canada, get caught in the cross-fire. China files claims against the U.S. at the WTO; legislative prospects for the USMCA dim and the U.S. eyes withdrawal; and Trump announces plans to overhaul trade agreements globally and threatens withdrawal from the WTO, further undermining the stability of the global trading system. Business sentiment is hit hard, with lower investment weighing on global growth.
    3. A market-positive scenario: Deals are struck on multiple fronts and include: the new USMCA; a deal with the EU to avoid Section 232 tariffs on autos; steel and aluminum tariff exemptions for the EU, Canada and Mexico; and an agreement among U.S. and Chinese leaders to reduce the trade deficit. Technology competition with China lingers as a structural issue to be addressed, though talks among senior U.S. and Chinese officials proceed constructively, averting further escalation.

We detail the key geopolitical events over the next year in the table below.

2022 Location Event
January 12 Global NATO-Russia Council
January 13 Global Meeting of the Organization for Security and Cooperation in Europe
January 17 Japan Japan flag Bank of Japan meeting
January 24 Italy Italy flag Presidential election process starts
January 25 U.S. US flag Federal Reserve meeting
January 30 Portugal Portugal flag Parliamentary elections
February 2 Euro area European Union flag European Central Bank meeting
February 4 China China flag Beijing Winter Olympics
February 6 Costa Rica Costa Rica flag General elections
February-March India India flag Uttar Pradesh state elections
March 9 South Korea South Korea flag Presidential elections
March 10 Euro area European Union flag European Central Bank meeting
March 15 U.S. US flag Federal Reserve meeting
March 26 China China flag Hong Kong chief executive election
April or May Hungary Hungary Union flag Parliamentary elections
April 10 & 24 France France Union flag Presidential election
April 14 Euro area European Union flag European Central Bank meeting
April 27 Japan Japan flag Bank of Japan meeting
May 9 Philippines Philippines flag Presidential election
May 3 U.S. US flag Federal Reserve meeting
By May 21 Australia Australia flag Federal election
May 29 Colombia Colombia flag Presidential election
June 9 Euro area European Union flag European Central Bank meeting
June 14 U.S. US flag Federal Reserve meeting
July 20 Japan Japan flag Bank of Japan meeting
July 21 Euro area European Union flag European Central Bank meeting
July 26 U.S. US flag Federal Reserve meeting
August 9 Kenya Kenya flag General election
September 8 Euro area European Union flag European Central Bank meeting
September 11 Sweden Sweden flag General election
September 20 U.S. US flag Federal Reserve meeting
October 2 Brazil Brazil flag General election
October 27 Euro area European Union flag European Central Bank meeting
October 27 Japan Japan flag Bank of Japan meeting
November 1 U.S. US flag Federal Reserve meeting
November 8 U.S. US flag Midterm elections
December 13 U.S. US flag Federal Reserve meeting
December 15 Euro area European Union flag European Central Bank meeting

Source: BlackRock Investment Institute, January 2022. 
Note: European Central Bank meetings shown are those accompanied by press conferences. The Bank of Japan events shown are followed by the publication of the central bank’s outlook report.

How it works

The quantitative components of our geopolitical risk dashboard incorporate two different measures of risk: the first based on the market attention to risk events, the second on the market movement related to these events.

Market attention 

The BlackRock Geopolitical Risk Indicator (BGRI) tracks the relative frequency of brokerage reports (via Refinitiv) and financial news stories (Dow Jones News) associated with specific geopolitical risks. We adjust for whether the sentiment in the text of articles is positive or negative, and then assign a score. This score reflects the level of market attention to each risk versus a 5-year history. We use a shorter historical window for our COVID-19 risk due to its limited age. We assign a heavier weight to brokerage reports than other media sources since we want to measure the market's attention to any particular risk, not the public’s.

Our updated methodology improves upon traditional “text mining” approaches that search articles for predetermined key words associated with each risk. Instead, we take a big data approach based on machine-learning. Huge advances in computing power now make it possible to use language models based on neural networks. These help us sift through vast data sets to estimate the relevance of every sentence in an article to the geopolitical risks we measure.

How does it work? First we “train” the language model with broad geopolitical content and articles representative of each individual risk we track. The pre-trained language model then focuses on two tasks when trawling though millions of brokerage reports and financial news stories:

  • classifying the relevance of each sentence to the individual geopolitical risk to generate an attention score,
  • classifying the sentiment of each sentence to produce a sentiment score

The attention and sentiment scores are aggregated to produce a composite geopolitical risk score. A zero score represents the average BGRI level over its history. A score of one means the BGRI level is one standard deviation above its historical average, implying above-average market attention to the risk. We weigh recent readings more heavily in calculating the average. The level of the BGRIs changes slowly over time even if market attention remains constant. This is to reflect the concept that a consistently high level of market attention eventually becomes “normal.”

Our language model helps provide more nuanced analysis of the relevance of a given article than traditional methods would allow. Example: Consider an analyst report with boilerplate language at the end listing a variety of different geopolitical risks. A simple keyword-based approach may suggest the article is more relevant than it really is; our new machine learning approach seeks to do a better job at adjusting for the context of the sentences – and determining their true relevance to the risk at hand.

Market movement

In the market movement measure, we use Market-Driven Scenarios (MDS) associated with each geopolitical risk event as a baseline for how market prices would respond to the realization of the risk event.

Our MDS framework forms the basis for our scenarios and estimates of their potential one-month impact on global assets. The first step is a precise definition of our scenarios – and well-defined catalysts (or escalation triggers) for their occurrence. We then use an econometric framework to translate the various scenario outcomes into plausible shocks to a global set of market indexes and risk factors.

The size of the shocks is calibrated by various techniques, including analysis of historical periods that resemble the risk scenario. Recent historical parallels are assigned greater weight. Some of the scenarios we envision do not have precedents – and many have only imperfect ones. This is why we integrate the views of BlackRock’s experts in geopolitical risk, portfolio management, and Risk and Quantitative Analysis into our framework. See the 2018 paper Market Driven Scenarios: An Approach for Plausible Scenario Construction for details. MDS are for illustrative purposes only and do not reflect all possible outcomes as geopolitical risks are ever-evolving.

We then compile a market movement index for each risk.* This is composed of two parts:

  • Similarity: This measures how “similar” the current market environment is to our expectation of what it would look like in the event the particular MDS was realized. We focus on trailing one-month returns of the relevant MDS assets.
  • Magnitude: this measures the magnitude of the trailing one-month returns of the relevant MDS assets.

These two measures are combined to create an index that works as follows:

  • A value of 1 would means that the market has reacted in an identical way as our MDS indicated. We call this “priced in.”
  • A value of zero would indicate that the pattern of asset prices bears no resemblance at all to what the MDS for a particular risk would indicate.
  • A value of -1 would indicate that assets are moving in the opposite direction to what the MDS would indicate. Markets are effectively betting against the risk.

*This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events  or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds, strategy or security in particular. The scenarios are for illustrative purposes only and do not reflect all possible outcomes as geopolitical risks are ever-evolving.

A number of commentators have noted that crises put history on fast forward, that decades can happen in a matter of days or weeks. The coronavirus has accelerated and exacerbated the geopolitical trends that preceded it. There are many uncertainties ahead as we try to envision the post-COVID world order. But there three themes that will be key to defining it.

At the beginning of this year, we noted that U.S.-China relations had shifted into a more competitive phase. Now, we see U.S.-China relations as transitioning into intense rivalry across nearly every dimension of the relationship, including trade, technology, ideology, defense issues and more. This is happening amid an election year in the U.S. U.S. steps to confront China have bipartisan support, which means that this dynamic is likely to outlast both the crisis and the U.S. presidential campaign.

The second theme is deglobalization. The pandemic has compounded existing pressures on globalization and supply chains. Pressures that were rising in the aftermath of the 2008-2009 financial crisis as well as U.S.-led trade wars of the past few years and rising nationalist and protectionist sentiment around the world.

The third theme is inequality. The pandemic will exacerbate divergences both between and within countries, leaving us with a world that is substantially more unequal. Many emerging markets and developing countries will be badly damaged as they have weak healthcare infrastructure, limited institutional capacity, poor governance in some cases and little policy space to maneuver. This pandemic could erase decades of progress in the fight against poverty and the building of middle-class households.

The bottom line is that geopolitical fragmentation is rising. U.S.-China tensions will intensify, deglobalization will accelerate and inequality will widen both within and between countries. This reinforces the need for resilience in portfolios and the drive towards sustainable investing.

Three geopolitical themes shaping the post-COVID-19 world

The pandemic has accelerated the geopolitical trends we were watching in the beginning of 2020. On this episode of the BlackRock Bottom Line, Catherine Kress, Advisor to the Chairman of the BlackRock Investment Institute, highlights three themes that will shape the post-COVID-19 world.

Stay ahead of markets with the latest insights from the BlackRock Investment Institute.

Please try again
First Name *
Please enter a valid first name
Last Name *
Please enter a valid last name
Email *
Please enter a valid email
Investor type *
This field is mandatory
Country *
This field is mandatory
Company *
This field is mandatory
Thank you
Thank you for your subscription!
We usually publish weekly insights on every Monday. Expect to receive your first newsletter from us this upcoming Monday.